International secondments

Sempra Metals - Successful House of Lords appeal against HMRC

Slaughter and May acted for its client, Sempra Metals Limited (Sempra), in successfully defeating the appeal by HMRC to the House of Lords.

This appeal follows the referral of Sempra’s case (where the claimants were also represented by Slaughter and May) to, and the decision of, the Court of Justice of the European Communities (the ECJ). The ECJ held that certain aspects of the UK’s advanced corporation tax (ACT) regime were contrary to Article 43 (then Article 52) of the Treaty of Rome and that Sempra must be provided with a remedy in English law to enable it to recover an amount equal to interest on the amounts paid to HMRC as ACT.

A significant number of claims have been brought in the High Court following the ECJ’s decision; these have, since 2001, been grouped within a Group Litigation Order, known as the ACT Group Litigation Order. Sempra is the test claimant on the question of whether companies such as Sempra should recover interest at a compound rate or, as HMRC maintained, a simple rate on the amounts paid by way of ACT. Following a very detailed examination of previous authorities, and of the different remedies claimed by Sempra, the House of Lords has found that:

– Sempra is entitled to compound interest from HMRC on the amounts of ACT paid from the date of payment to the date of utilisation or repayment of the ACT in question.

– The applicable rate of interest in this case is to be calculated, for the damages part of the claim, by reference to commercial borrowing rates and, for the restitution claim, by reference to the rates of interest and other terms applicable to borrowing by the government in the market at the relevant time.

As a result of this decision and the House of Lords’ decision in Deutsche Morgan Grenfell Group plc v Her Majesty’s Commissioners of Inland Revenue last year, in which Slaughter and May acted for Deutsche Morgan Grenfell Group plc (see below), Sempra is able to claim compound interest on payments of ACT going back as far as 1974. Some of Sempra’s ACT payments were unutilised for periods of up to 10 years. Whilst the precise amount due to Sempra from HMRC is yet to be calculated, the sums involved are significant.

Significantly, in addition to the findings relating to Sempra’s own case, their Lordships have also taken the opportunity to remedy a number of perceived defects in the English law on interest and the ability to claim compound interest has now been very considerably widened.